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  1. Government mulls economic stimulus as GST stings growth, say reports

Government mulls economic stimulus as GST stings growth, say reports

The Indian government is learned to be assessing the need for stimulus to boost the economy, in the face of the slowing growth in an economy hit hard by the transition effect of GST, and growing concerns over non-tax revenues.

By: | Published: September 18, 2017 1:25 PM
The government is looking at various measures to provide a stimulus to the economy, both short-term and medium term, but hasn’t yet taken a call. (Image: Reuters)

The Indian government is learned to be assessing the need for stimulus to boost the economy, in the face of the slowing growth in an economy hit hard by the transition effect of GST, and growing concerns over non-tax revenues. The government is actively looking at options to stimulate the economy, TV news channels CNBC TV18 and ET Now reported on Monday, citing unidentified government sources.

However, the government seems to be constrained with a limited fiscal space, specially in the wake of lower earnings on the account of lower RBI dividend and spectrum receipts this year, the reports said. The government will weigh the need to create fiscal space to boost growth, but is yet to take a view on the FRBM (Fiscal Responsibility and Budget Management) path, the reports added.

Adding to the woes of the government is this year’s ambitious disinvestment target, which is unlikely to be met, although, it will try to come as close as possible to hitting it. The government is looking at various measures, both short-term and medium term, but hasn’t yet taken a call. The finance ministry and commerce ministry will look at ways to boost exports and narrow trade deficit, the reports added.

But even amid all the uncertainty of what exactly will be done, there is growing clamour for the need to support the economy, the reports said, adding that there is a recognition within the government that the transition to GST has indeed hurt economic growth.

Earlier last month, the government figures showed that India’s GDP growth disappointed for the second straight quarter, slowing down to a mere 5.7% in Ap-Jun and pitting the country behind China on the list of world’s fastest growing major economies. The 5.7% fiscal first quarter GDP growth was much lower than the 7.1% seen in the same quarter a year ago. It even slowed down from 6.1% in the preceding quarter. The government sought to put a major part of the blame for slowing growth on GST, saying that very high level of inventories drawdown and destocking happened as businesses rushed to clear the stocks ahead of the implementation of the ambitious tax reform.

One of the areas the government may also look at is the informal sector of the economy, and how to provide it access to the capital. Further, it is also hoping that the resolution of one-two large bankruptcy cases will temporarily avert the bank recapitalisation needs, and will improve the sentiment.

Earlier May, the government notified an ordinance for speedy resolutions of NPAs in efforts to deal with the problem of India’s chronic bad loans, which have surged to to Rs 9.63 lakh crore. According to the RBI, top 12 bad loan accounts make up for Rs 2.5 lakh crore of bad debts, or 25% of the total. The ordinance gave powers to the RBI to direct banks to initiate bankruptcy proceedings against bad debt accounts under the Insolvency and Bankruptcy Code 2016 (IBC).

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